Brokers, Observers See More From Cumulus … and Cox

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RBR+TVBR EXCLUSIVE


Six months ago, veteran media broker Larry Patrick of Patrick Communications was consulted by several private equity holders who had taken on Cumulus Media debt. Many of these debtholders were going to stay invested in a “new” Cumulus — a post-bankruptcy entity under CEO Mary Berner. These brokers had one big question on their minds: What do we do when Cumulus’ top 15 market stations don’t make any money?

Patrick responded to an idea floated by one of the equity holders: Paring most, but not all, of the top 15 markets was a better solution than just selling off the lower 25% of the company’s markets. This was based on the premise that the cash flow would not change much, and that — in this equity holder’s view — Cumulus could further reduce its debt.

There’s debate as to whether or not that is starting to happen.

Meanwhile, another media broker who requested anonymity — in addition to a market observer close to the matter — are certain Cox Media Group is ready to say goodbye to at least two of its radio markets. This should please Caroline Beasley.

BIGGER CLUSTERS, SMALLER MARKETS

The week ending February 17, 2019, will likely be remembered among radio industry executives for two major deals, one involving Cox Media Group’s TV stations and the other involving Cumulus. For radio pure-play Cumulus, Country WNSH “NASH FM 94.7,” a Class B licensed to Newark, N.J., was traded to Entercom along with two stations in Springfield, Mass., Class B AC WMAS-FM 94.7 and 1kw Class C WHLL-AM 1450 “NASH Icon,” in exchange of Entercom’s three stations in Indianapolis: WXNT-AM, WNTR-FM and WZPL-FM.

Then, Cumulus spun six more stations — including two crown jewels in the former ABC Radio — to Educational Media Foundation, operator of Christian Pop noncomm K-LOVE — for $103.5 million.

Those former ABC Radio stations are an integral component of what Patrick recommended to the Cumulus debt holder he communicated with. The old ABC Radio markets present myriad challenges for a reconstituted Cumulus. As Patrick explains, there’s not a whole package of stations in three key markets — all in the top 15 as ranked by Nielsen Audio.

“I recommended to the private equity guys that Cumulus carefully pare off the biggest markets,” Patrick says, noting that at no time did he have any conversation with company management. He also is uncertain whether these private equity individuals had any conversation with Cumulus executives regarding Patrick’s suggestion.

Patrick’s view is counterintuitive to the growth plan the company had under former CEO Lew Dickey Jr. and his brother, former EVP John Dickey. But, in an age where streaming audio innovator Pandora claims it is ranked No. 1 in some 86 U.S. markets — “larger than top-rated broadcast radio formats among adults 18+” — companies like Cumulus are possibly best to focus on markets where a sizable cluster of radio stations can bring profits.

This explains why Cumulus moved to take Entercom’s trio of stations in Indianapolis, where those stations will be paired against its existing three FMs: Country WFMS-FM, Top 40 WYRG-FM and Classic Hits WJJK-FM. “Markets where you can have four of five FMs may be not as sexy, but you can make more money,” Patrick says.

It also means that, of Cumulus’ top markets, the Dallas-Fort Worth market stands out as an anomaly. Here, Cumulus controls Country stations KSCS-FM and KPLX-FM. Plus, it has Top 40 KLIF-FM, Sports siblings KESN-FM and KTCK-AM, and Talker WBAP-AM. With the No. 3-ranked cluster according to Nielsen Audio, behind Entercom and iHeartRadio, and six properties, there’s room for ratings and revenue growth that fits what brokers believe is a smart recipe for success.

THE ABCs OF RADIO TODAY

While Patrick cannot say if his words to Cumulus’ noteholders made it to the company’s C-Suite and were acted upon, one media broker who requests anonymity is certain that “several other things” are in the works with respect to station divestments.

“There will be a steady stream of announcements,” the broker says. “There is more to come. They are not done. There is a plan to get Cumulus back to its roots.”

This is why one may wish to focus on Berner’s comments made in a nine-minute Town Hall video presentation distributed February 13 to Cumulus staff. Explaining the sale of such former ABC FMs as WRQX-FM in Washington, WYAY-FM in Atlanta and WPLJ-FM in New York, in addition to WNSH, Berner said, “Adjusting our station mix as opportunities arise, including through transactions and swaps like the Entercom/Indianapolis deal, is simply good business. You might hear, ‘We’re planning to exit all of the big markets.’ ABSOLUTELY NOT. The stations involved in these portfolio moves were specific to this particular opportunity and we will continue to be opportunistic about enhancing our portfolio.”

Berner then emphasized how Cumulus spent $18 million while in bankruptcy to purchase a station in Chicago, WKQX-FM 101.1. Why? Because, she said, the acquisition would make Cumulus stronger in that market. “We were right,” Berner said.

But, the broker said, the key word one should focus on as Berner looks to build “Cumulus 3.0” is all. That means doubling down on mid-sized markets, and exiting Los Angeles, where it inherited ABC Radio’s KABC-AM and Rocker KLOS-FM.

Patrick, meanwhile, suggests both Los Angeles and San Francisco could be pared off by Cumulus. In Northern California’s largest markets, three AMs — KGO-AM, KNBR-AM and KSFO-AM — are paired with two FMs, KSAN-FM and KFOG-FM.

Then, there is Detroit, where Cumulus has former ABC roots and presently owns News/Talk WJR-AM, Country WDRQ-FM and Hot AC WDVD-FM.

Even with Berner insisting it is not abandoning all of its top 15 markets, could buyers be on the way in at least one locale, including Chicago? A Chicago-based market observer tells RBR+TVBR that the sale of the three properties would recoup more than the $18 million purchase price for WKQX, making the deal accretive to Cumulus — using a word Berner has stated many times with respect to the company’s future financial health.

Would Hubbard Radio be the natural buyer of WKQX and WLS-AM & FM? For now, that’s just speculation among media brokers who see the value of the properties for Hubbard, and the added cash it would bring Cumulus.

One thing seems to be certain. More change is in the air at the nation’s No. 3 licensee of radio stations, behind EMF and iHeartMedia.

“In the next 60 days Cumulus will be a much different company,” the broker says.

COX READIES RADIO MOVE

While the Cumulus chatter dominated the conversation, several leading brokers offered some insight on whether or not Cox Media Group was indeed looking to retain its radio stations, in light of the company’s decision to have Cox Enterprises serve as a minority shareholder in a newly formed Atlanta-based entity for its TV stations that sees Apollo Group take a majority stake.

Cox is indeed looking to shop some, if not all, of its radio stations, all can confirm.

This pitch to potential buyers started in September 2018, at the Radio Show in Orlando.

As the conference got underway, RBR+TVBR has now learned that there was more than just a meeting in a subterranean level of the Bonnet Creek Resort than that of key executives from Alpha Media and Hubbard Radio.

One broker who spoke with RBR+TVBR notes that Hubbard was also approached by Cox to discuss a potential deal for its radio stations. However, the broker said, Hubbard would ultimately decline to pursue the stations.

With Cox Media Group President Kim Guthrie telling RBR+TVBR in mid-March 2018 that rumors of a wholesale divestment of all of its radio stations was “absolutely not true,” here — like with Cumulus — the key word to focus on is apparently all.

“It is absolutely true that Beasley Media Group is seeking to acquire Cox Media Group’s Miami and Orlando radio stations,” one of four top brokers note.

Another says, “That makes a lot of sense,” given Beasley’s intimate knowledge of Florida markets. The company is headquartered in Naples, Fla., where it owns and operates stations. In October 2014, Beasley swapped its Miami and Philadelphia stations for those owned by CBS Radio in Tampa and Charlotte. With Cox’s top-rated Miami quartet of FMs, Beasley would be poised to compete against Entercom, which now has control of its former stations.

Of this group of brokers, two also believe that Apollo Group and Goldman Sachs could be looking at keeping markets such as Jacksonville and Atlanta as part of an investment effort — at least, for now.

Should the chatter involving Cox Media Group and Cumulus turn out to be untrue, it will be chalked up as just another hot rumor, spread by those eager to fuel the flames on a topic that won’t simmer down among buyers and sellers and the companies that negotiate the deals. If the rumors are true, it could cement 2019 as one of the biggest for radio’s next chapter as a growth industry.